February 04, 2004

The ecology of business

I ran across the definition for obliquity today, which led me on a train of thought about the ecology of business:

In philosophy, obliquity is a relatively new theory proposing that the best means of achieving a goal may often be to take an indirect approach rather than a direct one. The theory holds, for example, that individuals whose only concern is their own happiness are rarely happy individuals, and that companies that seek to maximize profits at all costs are unlikely to be the most financially successful.
Obliquity has much in common with the principles of chaos theory; both concepts rely on the idea that, in a complex system, the factors involved are too numerous and too intricately connected to be easily understood. Therefore, just as we cannot be sure that long-range weather forecasts won't be affected by some unforeseen influence, we cannot be sure that single-mindedly striving for financial success is most likely to lead to our goal. Rather, financial success could be a by-product of engagement in our work, and a commitment to responsible business practices and our communities.

The concept of obliquity in this sense was introduced by John Kay, an economist and business writer. In his lecture "The Role of Business in Society," Kay explores the value of a holistic approach to business, and the paradoxical success of such an approach over that of a simple focus on maximizing profits. Kay quotes George Merck (founder of the extremely profitable drug company): "We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear."

John Kay's lecture is a bit long, but here's a snip for you:

Part of the problem is that the claim that business is only about profits has in the past been contrasted with two unconvincing alternatives. One is that the purpose of business is to do good. Those who are in business should shed material preoccupations and we should all work for the benefit of the community. Another is that profit is immoral and, in consequence, all the assets of corporations should be transferred to the state...

I want to test these assertions against a much more powerful contrary position. This is that successful business is not in reality selfish, narrow and instrumental. What makes one a good parent, a fine teacher, a great sportsman, is a combination of talent relevant to that activity and a passion for, and commitment to, parenthood, education, or sport. Similarly, the motives that make for success in business, both for individuals and for corporations, are commitment to, passion for, business: which is not at all the same as love of money.

The defining purpose of business is to build good businesses, as the defining purpose of parenthood is to be a good parent. What we mean by a good business is as multi-dimensional and complex as what we mean by good parenthood, good education, or good sport. But nevertheless, there is widespread agreement on which are indeed good businesses. They are characterised by satisfied customers, motivated employees, well-rewarded investors, and high reputations within their communities. When lists are compiled of the most admired corporations, the same names keep cropping up - Marks and Spencer, Hewlett Packard, Sony. They are admired by everyone: their customers, governments, the financial community, the people who work for them, and other businesses.

This recognition of complexity is much more beneficial than blindly pursuing single objectives like profit, customers or social responsibility. It's important to ask ourselves when pursuing a particular business goal, "At the expense of what?" When executives are blindly pursuing shareholder value, are they doing it at the expense of employee loyalty, which then leads to a declining customer experience, which then impacts profits? This is what I call the 'ecology of business,' which has a lot of parallels with traditional ecology and conservation. The definition of ecology is "the science of the relationships between organisms and their environments." There's another phrase called human ecology, or "the branch of sociology that is concerned with studying the relationships between human groups and their physical and social environments." So business ecology deals with the relationships between stakeholders, corporate decisionmakers, and their environments. Every decision has a ripple effect that impacts multiple stakeholder groups, competitive activities, market dynamics, etc. A good decision-maker will evaluate decisions based on the consequences of those ripple effects.

On that note, John Kay quotes an example of wrong thinking about stakeholders:

"The most ridiculous word you hear in boardrooms these days is ‘stakeholders’. A stakeholder
is anyone with a stake in a company’s well-being. That includes its employees, suppliers, the communities in which it operates, and so on. The current theory is that a CEO has to take all these people into account is making decisions. Stakeholders! Whenever I hear that word, I ask ‘How much did they pay for their stake? Stakeholders don’t pay for their stake. Shareholders do."

This comes from a recent book by Al Dunlap, former Chief Executive of Scott Paper, variously nicknamed ‘Chainsaw Al’ and ‘Rambo in Pinstripes’ for his stewardship of that and other companies.

What a great example of short-term, myopic thinking. How is Dunlap going to provide shareholder value if employees are unhappy? If suppliers get fed up? If the customer experience is short-changed? I've been writing a bit about stakeholder-centric strategies, which directly supports this idea of the ecology of business.

What do you think? Got any examples? Off the top of my head, I'm interested in the ripple effect of Wal-Mart's policies with their suppliers in their quest to provide the lowest price possible (see Fast Company's Dec. cover story on Wal-Mart).

Comments

Interesting. I, too, have been observing the transformational move to a oneness of all things business via an authentic ecology. The ecology of business means - to me - the interrelationships of ALL things, with this one exposure on business and business dealings. Sustainable business seems to rely on natural principles folded in the world of doing business that has definite effects on us all. Move one, and another one is moved. Sales is to marketing as customer satisfaction is to the balance sheet. There is no separation.....anywhere. Money plays a significant role in all of it. The idea of money stimulates an energy both random and ordered, and they are both necessary. Continue the dialog.

Tom, thanks for your comment. However, I don't view interest to mean the same thing as money. Employees, customers and communities all have varying interests in the activities of a company, which might include loyalty, pollution, ethics, quality, overseas outsourcing, etc. Of course, money plays a part: getting paid, getting good value for the money, keeping a strong economy and high employment... but this is what complexity and obliquity is all about. "Money" by itself is meaningless, a means to an end.

There's something about the word "stakeholder" that rubs me the wrong way. In it's simplest business definition, a stakeholder is someone who has an interest ("stake") in a firm. And interest and "stake" refers to what? Money. The origin is from gambling, where stakeholder was someone entrusted to hold the stakes for two or more persons betting against one another.

In general, it's true that people with a passion for business do better than people whose only interest is in "making money"--I'd carry this down a level and say also that the passion is usually associated with a specific *kind* of business. One person may get turned on by the fashion industry; another by the software industry; another by automotive. Yes, there are many skills which cross industries (negotiation, financial analysis), but the culture of industries differs, and for most people there are certain ones that will energize them more than others.

Bear in mind also when considering "stakeholders" that corporate officers have a specific legal (fiduciary) responsibility to their shareholders.

Great post, Jen. John Kay is very convincing on obliquity; also his challenging of the either/or mentality towards doing good/making money is helpful too.

I am fascinated by complexity approaches and the idea of the ecology of a business. That Dunlap quote is fairly grim isn't it; I wonder how many errors and mistakes were made by underlings of his who felt unable to challenge such ex-cathedra statements?